Poland to Cut Rates, Markets See More Easing

WARSAW–Poland’s monetary policy council is widely expected to cut interest rates Wednesday in order to give the slowing economy a boost, but markets and analysts have already set their sights on deeper easing in coming months.

All 19 economists polled by The Wall Street Journal expect the 10-strong rates panel to cut the benchmark rate by 0.25 percentage points to 4.0% after it lowered borrowing costs by the same amount in November and December.

The European Union’s largest emerging economy decelerated sharply in 2012, with the annual rate of expansion down to 1.4% in the third quarter from 4.3% in 2011. The trend is expected to continue into 2013.

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“Comments following the decision will be most important as it will likely show chances for a next rate cut in February,” said Rafal Benecki, chief economist at ING in Warsaw.

Economists are split as to whether the rate panel will deliver a fourth consecutive rate cut in February, with some arguing rate setters will pause to wait for the release of the bank’s inflation and growth forecasts due in March.

Mr. Benecki said the new forecasts will cut both inflation and growth expectations, and it will provide doves on the MPC with the ammunition they need to push for deeper monetary easing.

“The council’s hawks are clearly softening their tone and have less and less arguments,” said Mr. Benecki, adding that he expects the central bank to cut the key interest rate to 3.0% by September of this year.

The central bank was accused last year of dragging its heels with the size and number of rate cuts below expectations of many market watchers and government officials. The bank even raised rates in May as it was worried about inflation, but the sharper-than-expected economic slowdown shifted the focus towards growth.

The central bank expects economic output to grow 1.5% this year before slightly picking up in 2014 and reaching 2.3%, while inflation will remain under control and coming down to the central bank’s 2.5% target in 2013 and even below it in 2014, when it’s expected to slow to 1.5%.

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